Dec. 21 (Bloomberg) -- The lira, the second-worst
performing currency after South Africa’s rand this year, will
lead global gains in the first half of 2012 as Turkey pares its
record current-account deficit, according to the median of
estimates from more than 20 banks on Bloomberg.

The lira is set to rally 4.4 percent by the end of June for
the biggest gain against the dollar among 33 global currencies
ranked by Bloomberg, the survey shows. The lira will be the
first to benefit from a revival of risk appetite as the European
debt crisis is expected to be resolved by March, Benoit Anne,
chief emerging-market strategist at Societe Generale SA in
London, said in e-mailed comments.

“Turkey is less exposed to recession risks and will again
be a prime investment destination,” said Anne who expects the
lira to surge 17.5 percent next year to 1.60.

The lira has fallen 18 percent this year, closing past the
1.9 per dollar level on Dec. 19 for the first time. Turkey has
the highest current-account deficit among 60 major economies
monitored by the International Monetary Fund at 10.2 percent of
the gross domestic product. Inflation accelerated to 9.5 percent
in November, the highest in 19 months, as the central bank cut
its benchmark interest rate to a record low of 5.75%.

Turkey’s 12-month deficit peaked in October and the
cumulative deficit will shrink toward 7.5 percent of GDP next
year as lira’s depreciation makes imports more expensive and
exports cheaper, according to Tevfik Aksoy, Morgan Stanley’s
London-based chief economist for the Central and Eastern Europe,
Middle East and Africa region.

Less Bearish Market

Option traders are turning less bearish on the lira,
reducing the premium to sell the currency to 3.2 percentage
points more than the contracts to buy it, down from a year-high
of 6.3 percentage points on Sept. 26, according to data compiled
by Bloomberg.

The lira weakened 0.2 percent to 1.8881 per dollar at 5:23
p.m. in Istanbul.

Better risk appetite and lower volatility are the two
necessary ingredients for carry trade to become an important
driver for the lira but that won’t happen until the second
quarter, Mats Olausson, emerging-markets strategist at
Skandinaviska Enskilda Banken AB in Stockholm, said by phone.
Carry traders bet on interest rate differentials, buying
currencies of countries with higher borrowing costs and selling
those of nations with lower interest rates. The Turkish central
bank runs a flexible monetary policy via an interest rate
corridor, forcing banks to borrow at rates as high as 12.5
percent.

Lira Strength

“During the first half of 2012, valuation and broader set
of fundamentals will become more important as investment
determinants,” Olaussan said. “This will benefit the lira
given Turkey’s relatively better outlook.”

Nineteen out of 21 banks expect the lira to strengthen to
1.80 or below in the fourth quarter of 2012, according to
estimates with Bloomberg. Eleven banks expect the lira to weaken
to 1.88 or above during the first quarter. Any depreciation to 2
per dollar would be an “obviously oversold level,” Olausson
said.

The lira approached a key undervalued level on Dec. 19 when
the currency closed at its lowest on record, according to the
relative strength index. The gauge showed lira pegged at 68. A
reading above 70 indicates the currency may appreciate from the
oversold position, according to technical analysts.

The central bank sold $700 million yesterday and today,
stepping up its dollar sales in daily auctions, sending the
currency to its biggest rally this month. The Ankara-based bank
offered to sell as much as $1.7 billion in the next two days.

“The central bank has been giving the impression that it
is currently content with the level of the currency and might
even prefer a slightly stronger level, which suggests that the
downside might be more limited than before,” Aksoy said.